New disclosure rules will bring drama to client-investor relations

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Bonfire of the Investment Advisers is as good a working title as any for the drama that will unfold in the financial industry in summer 2016.

Unless client-adviser communications improve a whole late, the introduction of new fee disclosure rules in July of next year is going to fry a lot of relationships. This is clear from the results of a recent survey of 1,000 investors with investable assets of $10,000 or more by a trio of consulting and marketing firms, Marketing Directions, 21st Avenue Partners and PMG Intelligences. Here are some of the more dismal findings:

-Only 16 per cent of investors said their adviser had talked to them about the new disclosure rules

-Over 60 per cent said they have not met with their adviser within the last six to 12 months to discuss fees; of those who did meet to talk about fees, less than half discussed the new transparency rules.

-Just over 40 per cent believe a typical mutual fund trailing commission shown as a dollar amount (that's one thing the new rules will require) is too much or way too much.

Advisers, some of you are handing the lead-up to the new disclosure rules all wrong. Investors, you've got responsibilities here, too. Shockingly, the survey found that 31 per cent of people with an adviser thought they didn't pay any fees for advice. For god's sake, people. Wake up.

What advisers need to do over the next 12 months is, first, show clients the more detailed fee information that will be on their account statements next year and, second, list all the services rendered in exchange for that fee. We assume here that there are services to be mentioned in this context – financial planning, portfolio rebalancing and perhaps assistance with taxes, estate planning, debt management, mortgages, insurance and more. The rise of cheap exchange-traded funds and the sharp decline in online brokerage trading commissions makes do-it-yourself (DIY) investing almost startlingly cheap today. If advisers are going to justify their fees to clients, they will have to show they do more than simply buy and sell investments.

Investors need to understand that the fees they will see disclosed in dollar terms next summer can only be understood in the context of the services being provided. If an adviser hasn't done a thing for you but invest your money in some mutual funds, you're being hosed. If you have a financial plan to guide your investing and regular meetings to assess your progress, your fees are buying a lot.